The Advantages of Dealer Consolidation-Part 1

Last week on my vacation I read a book by the economist Paul Krugman who got me thinking that consolidation in most industries is part of the dynamics of economic forces. Any industry can be skewed by laws, new skills, or technology. The decorative and fine arts industry has its 800 pound gorilla with the Sotheby’s and Christie’s duopoly still able to function unabated. But that can change, like GM or Citibank.

The clear advantage that dealers could have to break the back of auctions is the ability to warehouse and sell directly; not with secret reserves, but negotiation. Unless you came from the planet Mars and you never met an antiques dealer, negotiations are fun. All things considered, would you rather buy with some personal contact or be taken advantage of with an impersonal 25% buyer’s premium?

Dealer consolidation would appear to contradict every antiques and art dealer’s reason to exist. There are no comparable dealers as individual businesses that do the volume of many auctions, and have the profit margins to boot. The overhead of a staff of specialists and warehousing is something that doesn’t exist in the trade. The advantages however become clearer when good marketing with good products can catch the attention of the public, but especially the dealer, collector, and interior design trade. Just like the duopoly, branding their names and format are critical to being able to distribute their products.

Starting the consolidation process is as tough as getting antiques and art dealers to admit they are in an industry where they have no public voice. However a firm like M.S. Rau Antiques, based in New Orleans has a format that offers industry potential; a large diversified inventory with a web and physical site, and a professional staff. Newel of course would work, as well as 1stDibs, but any business model that can support the acquisition of inventory and markets its pricing, can make it work.

Art and antiques have the commodity quality of supply and demand. The ability to trade is based on cash and or credit. The credit is more personal and not institutional like if it were from a bank or brokerage. Even money market funds can choke. But art and antiques traded in the right way can offer a reasonable alternative to an auctioneer’s deceptive pricing in the form of sham bidding to reach a secret reserve. Dealers wake up and smell the roses.

All dealers negotiate if they want to or have to; call it a commission, discount, or special price, it can’t be higher than the disclosed asking (list) price. However the commission structure on each item should be affected by if it is owned by a member dealer or is on consignment. Investing your capital should bring more profit, and capitalizing your own merchandise to the inventory of the dealer organization should be to your benefit. When selling consigned items the profits should be apportioned.

But before I go on about an art and antiques world nirvana, the double whammy of capital needs and organized business entities have to be solved. It should have been simple in the last 35 years to create such an industry model, but the duopoly got there first with their implementation of the non-negotiable, always rising, buyer’s premium joined with a secret reserve price.

Post your prices!Collectors often shop at certain price levels. Help them find what they can afford. (Why waste their time and your own?) Don’t leave the pricing power to the auction houses! Your price is an important message, communicating openness and fair dealing. ARTNET